I have previously written a post about replacement value of your belongings. This post is about the replacement cost of your home. (you can see the other post here: http://mannoinsurance.wordpress.com/2010/04/27/replacement-cost-vs-actual-cash-value/ )
This is a conversation I have with many people. I ask “How much would it cost to rebuild a similar home in the event of a total loss?” Many people respond with something about “what they can get for their house in today’s market.” In this real estate market, more often than not there is a large disparity between the market value and replacement cost of your home. The market value is what you could expect to sell your home on the open market.
Regarding the replacement cost of your home, let’s look at an example of a fire damaging most of a house, causing it to be inhabitable, and forcing the homeowner to knock down the house and rebuild. So far, we have already incurred two large expenses, and we haven’t even rebuilt the house:
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1) Loss of use: If you can’t live in the house, where do you live? Your homeowner’s policy should have coverage to pay for you to rent a house or apartment somewhere. To demolish an existing house and rebuild could take months or even over one year. This coverage is separate from your Dwelling coverage on your home, and is a function of the dwelling coverage.
2) Removal of debris/demolition of existing home: This could be a very large expense. Think about it for a moment. Half of a house is standing. Sure a bulldozer could come through and remove much of the debris, but what if the foundation was damaged and needs to be replaced? This could be a VERY costly expense. This coverage is typically lumped in with the Dwelling coverage on your policy.
These two events can be very costly, and every homeowner should be aware of how these coverages work. If your “dwelling” coverage seems too high, take a step back and think about the possibility of having to replace your entire home.
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Besides just the cost of rebuilding a similar home, some carriers have “extension” coverage options. For example, if over time building codes and regulations change in your city, causing the cost of rebuilding a home to increase by 25%, there are ways to have an extension of coverage built into your policy, sometimes as much as 25%, 50% or even an unlimited amount above and beyond your Dwelling coverage.
If you would like to review your current coverage to see if your family's home is protected properly, call Tom Manno any time at 708-646-9280 or email tom@mannogroup.com.
